tv [untitled] January 9, 2014 7:00pm-7:31pm PST
the risk that web cor, undertook in each part is still separate and so if this part runs over, and this parts runs under, we get the benefit of it instead of web cor and i may be completely off track on this effect and i don't know but i am just curious. >> and so, the preconstruction services is the only component of the web cor very large contract that is actually timing material. and so, back when the agreement was arranged it was knowing that there, that the scopes could change and it, and we kept some of that risk by doing a time and material component of it and the larger contracts when you have the fixed fee and all of those, there are those risks that definitely you are right, has web cor has assumed in their bids, you know, in their fees and stuff. but at the time of the material, and for specifically only preconstruction, and that is and you know, with the added
scopes, in fact, what happened with the rva and the risk and vonnerbility assessment and there as actually already a model and theyed to remodel and that is part of the components that with the time and material it actually made it very easy for us to get to a stage and because they have a track with them the exact hours and track for efficiencies, and steve is in the room, and he knows that we sit down all of the time to keep track to make sure that they are working as efficiently as possible to work under the contract. >> even under the time and material contract when you have maximums in there, they have the risk that that task is to be performed within that number of hours. and what you seem to be saying is that is not the case and they put it in and wow, it is going to be 1,000 maybe hours and that would out to this
maximum but if it becomes 1280 hours, well it just did. and they, and if the scope changes, they would have a justification but if the scope does not change, they have to hold to the work plan. >> they do bear that risk. >> so that gets to my question and if they bear that risk, why don't we keep it isolated so that the risk just does not get smoshed across the whole project and you still bear the risk that you have to bear that amount for this maximum and go on and it seems like we will have more control. >> okay. >> i just wanted to add that we are, authoritying on a month by month, typically a month by month, basis and so while it is all one aggregated amount in the control and notices to proceed are given with the resource letters plans that dennis associated with the work that needs to be done for the upcoming trade packages etc., and so we are monitoring and tracking and only authorizing
what is needed on an as-needed basis, so, while you are approving a contract amendment that allows the preconstruction services to go up to 31.9, they are not going to get a notice to proceed, that carries them through december 31, 2014 tomorrow, that gives them another 5.7 million dollars, it will be whatever 100,000 dollars for the work in january, february. >> that seems like a different issue, i understand that, that is just sort of, yeah, we do the work as-needed and we have always got our own issues as to what needs to be done when. but i don't know, maybe just i have to do this information, off line, i just still don't see why that the risk that they should be bearing to stay within their bids, individually as we add to the job, that those are not still separate individual components that they are saying that it is going to take any xmore hours to do this new stuff and it is out of scope right? and so it is new stuff and so
that is kept and monitored what they already bid on. >> and i guess that i am not complaining myself as well. >> and we are, each addition to the preservices is the only amount that we track against and they are saying that even though the contract reads that it is all smoshed together we still have the ability to say that in the first part a. you still have to do it within those number of hours and just adding up these hours in total, it does not mean that you have to do each part within the bid that you said that you would do it. >> each month, they have to, or however many months are authorized they need to do whatever is attached to that ntp as the scope of work for that dollar amount. >> yeah. >> well, we will just have some ex-tened talk about it and so i can understand this. and then the second question
is, your subparagraphs four and five. under the preconstruction services, those look like they are brand new and they apply to the whole job is that right? >> is that the one that i want to make sure that i am looking at the right thing here. but, on 5.01 a four and five. >> yeah. >> and i mean that those are not. >> those are not specific to this particular added scope, it seems like those are now meant to apply to the whole job, which makes me think that there is maybe, some monitoring issue that we have picked up that we said that we have got to put in and we have got to put in some language into the contract that makes that monitoring different. is that... >> we have not been having any monitoring issued. but the language does make for a stronger contract and it does apply to all of the preconstruction services.
>> okay. >> so someone came up with the idea of putting in a stronger contract. >> probably a lawyer. >> i hate them. >> you are quickly back on question number one. and if we had the out of scope or the additional scope that was separate from the original and we could separate from the items it is a global impact to everything, and so, at this point you are not able to separate, you know, that is why we are going to keep it together and we will talk. thank you. >> thank you. >> okay. >> and all right. are there any more questions or comments? >> thank you. for those questions. we do have a motion and a second. >> so why don't we take the roll call on this item. >> sure. >> and the members indicated that they wanted to address you, director lee. >> aye. >> metcalf. >> aye. >> reiskin. >> aye.
nharper. >> aye. >> kim. >> aye. >> that is five aye and item 9 is approved. >> you can go ahead and call item ten for you. >> presentation on the downtown rail extension project delivery options. >> directors as you know in november we presented the board with an updated cause for the downtown rail extension and a recommended delivery method. and an added scope that did not require additional review that would allow the city to move forward with the plan should the rail yard development as well and the boulevard in the future in a cost effective manner, at the time the board asked us to come back this year and drill into more depth, the various components and so to that end we are doing that today, starting with a presentation by george tapis who comes from us from urs with many, many experience and project delivery specifically on the prokurment and public partnerships and it is
different types of delivery methods and what the pros and cons are, and delivery method 101 if you will. and i would like to introduce george and have him do the presentation. here is the quick agenda. and so i will not spend a lot of time on that. i do want to talk about the objectives and it is really a meaning of options and a lot of ways that you can deliver the pro-guesses and programs and so we will talk about that and we want to keep this objective at this point in time and here we will start with what each program will be and how each method works and the benefits and the limitations that each one has. and also look at where they have been used before and i have pictures and examples that we will talk about those. and try to map in how does that work against what the goals for dtx will be. here is just the five that we will talk about, everything from the design build which is
traditional all the way up to the pthree, and you will start to see, hopefully, that what happens is, the risk starts to transfer, and as you get into furthermore, to the left, and to the public, private partnership realm and with that, you lose some control, but you get a lot of advantages by that risk transfer and so it is always kind of a balancing and where we sitcom fort wise. and we will start with the design bid build and that is traditional and we know what that is used for thousands of years and very, very well known. and other perspective and 100 percent, and it has got a lot of advantages to it and the market place knows it. and i understand how it works, and some of the benefits and some of the limitations associated with this and there are certain out come because you have 100 percent design and you know what that is going to look like. the market place very much knows what that looks like. but there is a lot of limitation to this in particular, that there is no integration, design or construction, and you have kind of everything in the separate
silos and they are not talking to each other to any degree, and it has cost overruns and cost and littation and little risk transfer that is associated with this and so it is something that we know what that is and it is commonly used. and so the next one to talk about, is construction manager at risk and slightly different than what you are doing for phase one in that, in a cmart and there is a gnp and a guaranteed maximum price that is associated with that. here, the designer and the contractor are hired early, and very, very early in the process. and they are very integrated and very collaborativive in nature so you are working things out but you know that i will talk about, the risk transfer in a second. but when you get done with this, you do have a gmp and you know where there is going to go and you are driving the certainty and it is highly interactive and you can proceed with this in a collaborative
nature and integrated nature as kind of the three pieces one is the designer and one the contractor and the owner kind of all working together. where the benefits come in this is that collaborativive nature and it is a very open book and so as you are designing and as you are figuring out the construction you are also estimating the balancing the risk in so you can see this thing and so it is kind of what we called sometimes a open book type of a transaction. and you drive in for that certainty on a schedule and on a price because you are getting that, with the limitations come in with this model, is there a lower amount of competitive tension and because you have locked in with the single source and it does create the complex relationships and nothing that can't be overcome and sometimes it does get a little contentious and it does add some time but because you are single sourcing, what will happen is as the risk gets built in, it continues to build and thes hard to get to a budget that can be controlled
sometimes, because they have to risk in as you look at certain items. and the next one to talk about, which is becoming much, much more familiar in the united states, prominently in the last 20 years, is design build. here, it is about a 30 percent design that is issued. and not 100 percent, and sometimes a little bit more, it is what we called, sometimes a proof of concept and a way of doing something. and that the industry will understand. and here though, we start getting in to a little bit different of a methodology and it is a two-step process and the ones talk to as well. this is solely based on qualifications when those three teams or four teams or whatever number you choose, get short listed you go to the rfp and sometimes i say that qfor quality, and p for price, and now they are trying to be competitive and beat each other in a competitive atmosphere
that drives value without sacrificing quality to be able to meet the budget and the certainty as you want it to be to meet the budgetary constraints and some of the benefits, and design and construction now are going on at the same time and so that gives you a great advantage in terms of accelerating a project and getting it going and hitting certain market pricing indexes that, as well as other things that happened, so it moves the project along, very, very rapidly and you do get the certainty and the schedule certainty and some of those margins are based on getting it done in the time frame that they need to get it done it very much drives that it is an integrated team now and now the design and the contractor are working together in hand in hand and they are part of the same team, unlike where they are two separate entity and here they are integrated as one entity to the owner. and the limitations, you don't really get a warranty on this kind of work they will give you
one or two years that is what the sfraoe says and so you don't get life and you don't get quite as much as you would want to get as some of the ones that i will talk about coming up and you will get the risk transfer but it is some what limited and you are still subjected to a lot of claims and litigations simply because that scope has to be nailed down 100 percent. and another method that kind of sits between the p3 method and the design build is what we called the design build finance, and so it is a little bit of a hybrid. and here the key thing is that you, at the end of construction, the principle construction, you are not paying them 100 percent because maybe you don't have 100 percent of the funds, and you will pay them back over a period of anywhere from, you know, one year to four years, we have seen it, touch five years, and typically in the three year range and so if you don't have all of the funding that is available to you, design build, finance because of something that you may want to consider. and because it gives you some flexibility on that end of
things, and so that repayment is made back. and so it is set up early so that they know what it is and because they have to go out and get the lenders to do this, but again, it is a shorter amount of time, so, the disadvantage of tax exempt debt does not quite have as big of an impact as what you will do when we talk about the second p3. a lot of jurisdictions have used this. mainly on the highway, some of the transit because federal funding is coming or the bonding is coming and it quite has not hit yet and a lot of states use this in the association with aero funding because they needed to get going with things because they knew that the funding was coming and able to get the projects out faster. and it has all of the benefits to the design build has and i talked also about the fact that you have a lower amount of tax exempt debt because you are out in the public realm here in a third party, and then you would be in p3, because, it depends
on what the package will be, in terms of the dollars that you will owe them, beyond then the construction. and it is excellent for competitive tension, and it drives value. you have to kind of be careful there too, because it is still does not get as far as maybe you want to get as much as maybe a p3 would, and it also gives you the ability to manage your money a little bit different and i think that is the key benefit that i want to emphasize is that you pay them back in a scale and the other benefit that you get is until you pay them back, they are kind of giving you a baked in warranty and so something goes wrong in the four years, a crack in the foundation and you have got to fix that because they are on the site and they are kind of around and they are operating and maintaining 100 percent but they are taxed to the project in a way that gives you a benefit. and some of the limitations are that you as an owner are still retaining a lot of risk and only the construction risk and
some of the design risk comes over and not before oand m and you get that benefit that we are talked about on maintenance and it is just to that time frame. and the construction financing is going to go into the taxable bank market. and if you say that i owe them $300 million that is going to be at a prime rate not a a tax exempt rate because they are doing that to hold that for you. that is where you want to get the balance right. and going off to the next one, and this is really kind of the public, private partnership realm, and i like to call it dbfm because you kind of build those letters up and here you introduce, maybe, two key elements beyond the other delivery methods and one is that there is a long term private finance component that comes in and the second thing is that you are getting a life cycle and maintenance and rehab and hand back and you are getting those things as part of this, and so now, it will
design it and look at what the maintenance is and so it will design in a way that maybe look as non-ta dishal and it creates a lot of advantages because at the end of the p3 you are going to say that i want the assets back with a lot of residual life with x amount of years and quality, so you have to balance the design and or do i maintain the cheap and expensive, it is neither, it is a balance that each firm does and i will show you at the end that this is what drives the value for the money that you are seeking. and it is a performance based contractor and you are looking for out comes here that is really what you are driving heres bau you want them to kind of breathe the next piece which is the innovation and the ingenuity and it really acts as a behavior tool because they are insent viced to keep that at a high quality for throughout the 30 year term for example.
and some of the benefits that i have talked about, you get a lot of certainty and there are little change orders in the actions and you get it as well and because they are trying to get it done fast and her faster. because that is less money that they will have in the market place so that the lender are on and that is excellent, in the competitive tension and we will talk about that, and at the end here because it always drives value and always seeking to be able to create the best trap if you will, and maximizes the risk transfer here and i don't want to fool anybody by saying that you maximize everything, because you don't but you have the ability to create a structure that really off loads it to the private industry, the proper way, structure commercial and business wide, the right way to drive the most amount of value and get the right kind of an out come and the limitations are, that it is a new kind of delivery method and it is still new to the united states and it has
actually been here forever, but in the current state that we do it today, it is looked upon as really new and rather innovative if you will. even in the street car system of the public private partnerships, but they are not done in the manner with the strong hand back, the cost of private financing is what makes this the most expensive type of delivery to finance. so, i want to always get that out there because you don't get all of the advantages of tax exempt i am not going to spend a lot of time talking about the first part but there are two types of public, sprie vait partnerships and i think that it is important to know because when we get into the good, the bad and the misunderstood, you know to make a little more sense but the first one is revenue concession and this is not what i would think would fit the dtx phase two, this is where you are transferring any revenue that you may gain to the private entity and so that is the key dynamic there and so in order that could be very, very good and it could be very
powerful results when you have an excess of revenue the owner gets some and the private industry gets some and you create the right kind of balance and here this does not fit what really does fit for consideration, is what we called the availability type of structure and sometimes we call these non-revenue deals and any revenue that is generated stays with the owner and you control that and the private industry does not get that, so you get into a behavior or a performance type of a contract, what makes that importance is that is what incentive vices them and so the availability payment, at the end of construction, somewhere between 66 and 75 percent, of the capitol construction costs would go to the private industry. so you owe them 25 to 33 percent, plus or minus how you set up that instruct stur and you pay them back on a monthly method for the next 30 years,
much like a mortgage, but it is based on the fact that the asset is open and available, performing the way this we want it to. and in this case, that, you know, the comp system is working and the train system is working and the rail is right and the lighting is right and all of the amenities that we have are built in and stay on the front are there. and they do a good job and get the monthly service payment if they do a bad job, they get deductions on that and they never get that money back, once they correct it, they get their money, but once you lose it you never get it back, what it does is provides you 30 years of senator of what that is going to be without necessarily uptick and they will take the market risk and construction risk and they will take the material intexts and light and cycle thating is all now part of it and you will know that up
front. and other transactions are coming on-line and not just in rail, but in highways, and in vertical construction as well. again, the one thing that just to always keep in mind that the taxes and bonding abt will cost you a little bit more because you are actually buying the insurance payment if you will with the behavior tool of that availability payment. so just to talk about some of the examples. design build. there is a real solid history and some of it has been good and some of it has been bad and it depends on how you set up your transaction and it is mainly about change orders and litigation that is associated with that and what is misunderstood, a lot of times is when you get into the design and build you do get the risk transfer not as much as you want and thes a comfort thing of where you want that to sit. >> it is not ideal from those perspectives. and design built is just a few of these example and they have
used it on three highway project and some roads down in florida, and very successfully delivered, and typically about 203 years of financing because they are looking for federal toneding to come in. and to date, none of them have gone bad in any way, they have all been kind of successful and there is not a horror story to tell you. but what is misunderstood is for you to understand that there are legal obligations that we have it look at and make sure that that is okay and each state has a different set of criteria and the legislation that has to be made and make sure that can work in the way that it is and especially considering everything that you are going to do financially. and on the db, fm concessions i just want to point this out and where you hear about pm going bad, this is the area that it has gone bad in, there are real good ones, chicago sky lane and northwest park lane in denver in particular are well maintained facilities and actually they put a lot of
resource in and they care about what they are doing because they are getting the revenue and don't want to scare the people away, there are bad ones, i am not going to hide from that and that is the truth. and the express way, 125 did not go as well, and sh 130 in texas went up for default on their loans and so that was another one, and highway 47 is a good one, but it is one of those ones where it is a concession, and the first 15 years, the concessioner really lost, the next five years, they made their money and got 70 more years to go, and so they look at that and say we give away too much. and so concessions can really, if you manage it right, the up sights may not make sense to an owner, and the parking that you may know about that and there was another one that was not a great deal and i hate to say it, it was not what a public vie vait partnership would be. >> the pennsylvania turn pike and those are actually both, the turn pike did not close,
the legislature did not approve it, it was a good deal just not the dollar value that they were looking. and indiana, it was a situation, where they copied the standards and did not mode identify it to the specifickness of wra they were looking for and so things like rest areas are completely left off and so nobody cares and not the way that you want to do things. >> availability much better track record and better way to go, the one that i personally was involved in and something that i am proud with is the light rail system and a lot of things to this, and there is the capitol in canada and closed in the 2013, and 2.9 billion dollars, and with a value of 4.9 billion and the largest in canadian history. and and we had a affordability and we hit it. and that was remarkable to do. and it was successful, and we started to break the ground and it was colder than san
francisco. and it is going to be a while before they get in the ground and this year they will start to see that happen and one that is completed is the candle line in vancouver and here is something that had to get done prior to the olympics, so vancouver was behind it and fully operational and running, the 595 corridor is the first availability in the u.s. and florida, and fast tracks is another one and successful in denver and that was done by pthree and light rail and right here in san francisco, the parkway is closed now and you are going to start to see the ability tift there and the bad there has not been a lot of bad and i am talking globally, on the availability payment, what happens on the occasion, is when you have financial crisis and certain enders underneath, and they may have problems, but they had the ability to replace them. but it is not a default, there has not been a lot of performance issue because they are having to incentivize to deliver.
>> and one in particular in california and that has been studied to death and it is still a good transaction, and but i don't know if that was just put out to the public well enough so that everyone knew what they were getting into and i heard fantastic stuff today and letting the public know what is going on whichever way that you decide to dow is going to help you. and on the development status, and there we go, sorry, and the yeah, the fbis and the eir was certified in 2004 and the supplement is planned for next year, and the design right now is in the neighborhood of around 30 percent, and you have already received a sign-off from high speed rail and cal trans, to accommodate that and the btx and it is now a regional priority as you all know, what has been recommended
and i understand, where do you have and how do you start to figure out which way is really best and so here are two things that we really think are at a my level and quick that you can get a better understanding and this is kind of part a is all kind of lumped together and one is to determine the analysis and so looking at each one of those procurement options and the subsets that may come to those and understand which one of those and sarah talked about the development that you guys have made on the wrist modeling and we will pick that up and we don't recreate it we pick it up and, what we call the enterprise risk and some of the policy risks that are associated with that and so we get a full plate. and we are also very big on well, okay that is great, we understand the risk and we can allocate those and we can mitigate those. >> and i reduce the risk
premium of driving the value and the last thing that we do is create the value for the money study. and in the whole life, or in the construction depending on what method we have, we can compare one method to the other and delivering it a, to z, and what we do and what you find and that is why the risk is so important is to understand, what you are transferring and how you are transferring it, and we are fortunate because we have the transactions that we can pull from and so that we are not recreating that we own a lot of cases if you do get, for example,, you know, the dbfm to work and it actually says that this is cheaper than traditional, by traditionally in the neighborhood of 5 to ten percent, and you say, that is generating value for money for me, and that would make sense to examine that to the fullest. and this is just an example and this is taken from another project and so don't, it is not mapped in any way against this project. and but we would like to sit down with all of the